Ten Tips for Successful Long-Term Investment

Ten Tips for Successful Long-Term Investment

Last Updated: 2019-03-14T04:30:00+05:30 IST

With many avenues to multiply wealth, an individual can go for long-term or short-term investments based on their financial goals and liquidity position.

Investing in the market is one of the preferred avenues for wealth accumulation as it yields better returns when compared to the traditional forms of investments such as bank deposits, FD’s, PPF and others.

Nevertheless, when opting for long-term investment, hasty and uninformed decisions can lead to massive losses. An individual requires patience, fiscal discipline, and constant research on the markets when going for long-term investments.

Here are some tips for being a successful long-term investor:

1) Know it all:

Before proceeding to purchase stocks or securities, thorough research is vital. Don’t invest in a company just because of its name. Browse through information on the trends of the market, read up on the company and its performance in the past years, and check how the stock is performing before purchasing. This information will assist you in understanding how the stock or company is fairing in the market.

2) Invest in the business:

‘Never invest in stocks, invest in a business’ is the success formula used by expert investors. Knowing the business methodology and about the industry will help you in assessing the future of the company. It will be easier to pull out in time if the business prospects go on a downhill.

3) Never accept tips:

Regardless of who says, it is not advisable to chase a hot tip. It is always better to analyze and research before pursuing the tip. Even though some tips might prove to be profitable, it is better to have all the facts checked before investing your hard-earned money. It is wise to follow a well-researched decision than go with the crowd when it comes to investing in stocks.

4) Don’t panic:

Never panic when there is short-term volatility in the market. It is essential to focus on the bigger picture rather than sweating on the small stuff. Markets rise and fall now and then, and any movement that pertains to the short-term graph is not relevant for long-term investments. The success of long-term investors lies on staying focused and not taking any hasty decision.

5) Never stress on the P/E ratio:

Many investors give more importance to the Price to Earnings ratio or the P/E ratio over other parameters when selecting stocks. But being dependent on only one equation is not the right way to choose successful investments. A low P/E ratio does not necessarily mean that the stock is undervalued nor a high ratio indicates that the stock is overvalued.

6) Avoid penny stocks:

There is a common misconception that low priced stocks like penny stocks result only in lower losses in times of adversity. But it is not the case and it is better to invest in the quality stocks over penny stocks. These stocks are very speculative in nature and are considered highly risky because of lack of liquidity, smaller number of shareholders, and limited disclosure of information.

7) Have a strategy:

There are many techniques to select stocks and sticking to one of them is very important. Having a strategy that is suitable to your financial goals and risk appetite helps in building a successful long-term investment.

8) Regular dividends:

Wealth accumulation is a primary motive when opting for long-term investments, but dividends are a great source of passive income. When the company is in profits, it will distribute a certain percentage of the profit as dividends to its shareholders. Holding an investment that gives returns on not only selling but also as a regular income, is one of the ways to become a successful long-term investor.

9) Focus on the future:

The most tricky factor to successful investing is making informed investing decisions based on future events that are yet to happen. It is essential to base your decision focused on the future potential of the business and not just the past performance.

10) Keep an open mind:

When aiming for long-term investment, you need to have an open mind for selecting stocks. There are many good investments hidden among the bigger players, and there small companies that have the potential to become noteworthy companies. Therefore, if the investor feels the company can grow, then they should invest in them.

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